Black list created distrust in Estonia

Ukraine’s decision to add Estonia to the list of countries it considers tax havens managed, in just a few weeks, to create a situation where Estonian companies were avoided by both banks and business partners.

Estonia’s temporary inclusion in Ukraine’s “black list” of countries was not connected to the e-residency project, said deputy head of the program Ott Vatter and Deputy Secretary General of the Ministry of Finance Dmitri Jegorov.

“Our Ukrainian counsel told us the restrictions concerned Ukrainian companies the annual business of which with Estonian firms exceeds 10 million hryvnias (approx. €280,000). E-residents are usually small businesses whose annual turnover falls short of that sum,” Vatter explained.

Dmitri Jegorov said that e-residency was not concerned as Latvia, Hungary, Malta, and Georgia were all added to the list and do not have e-residency programs. Surprisingly, Ukrainians are the third most numerous group among Estonian e-residents, after Finns and Russians, numbering over 1,600.

Jegorov admitted that more attention needs to be paid to the subject matter of transfer countries when monitoring international transactions. That said, he does not believe it right to create lists of “especially black” countries, and that rather monitoring of transfer prices should apply to all cross-border transactions between connected persons.

“Lists like that can result in unwanted side-effects and did: banks started avoiding working with companies that have ties to Estonia, and the attitude of business partners changed. This made life more difficult for Estonian entrepreneurs in Ukraine,” Jegorov said.

The deputy secretary general said that placing Estonia on the list was a mistake as one of the black list’s criteria concerns tax rate.

Countries that have a tax rate that is five or more points below Ukraine’s 18 percent are put on the list. Estonia’s rate was interpreted as zero. That is not correct as Estonia maintains a 20-percent profit tax.

“It is impossible – without certain unfortunate consequences – to move profits not taxed in Ukraine through Estonia to whichever regions, contrary to what Ukrainian authorities thought,” Jegorov said when asked how convinced he is that foreign companies are not taking advantage of the Estonian tax system.

Prime Minister of Ukraine Volodymyr Groisman said during a government press conference yesterday that Estonia, Latvia, Malta, Georgia, and Hungary have been taken out of the list of tax havens as it is “a highly sensitive issue” for the countries.

We are consistently monitoring the tax systems of various countries and putting together claims lists for Ukrainian companies working with these countries, so they would report their revenue,” Groisman said.

The Ukrainian government added Estonia, Latvia, Iran, Cuba, Laos, Lebanon, Malta, Monaco, United Arab Emirates, Singapore, Georgia, and Hungary to its list of tax havens in late 2017.